Upfront downdraft

Buyers see price cuts in this year's spending, but sellers don't

By By Steve McClellan

When CBS presented its new prime time schedule to advertisers two weeks ago, network sales President Joe Abruzzese said he expected to wrap up the upfront sales market in three days just like last year—with one big difference: Those three days would be in August instead of May.

Abruzzese was joking—or at least half joking. But the fact is that, a year ago, the upfront was wrapped up in time for buyers and sellers to relax over the long Memorial Day weekend after a week of marathon negotiating sessions.

This year, too, buyers and sellers could relax—because the upfront hadn't begun and isn't expected to get under way for another week or two. Buyers say that they aren't in a big hurry this year and that the market could stretch well into July.

Both sides say it's a buyers market this year, and both sides also say advertisers will spend less upfront. Where buyers and sellers differ is on how much less money there will be and whether there will be price reductions on a cost-per-thousand-viewers (CPM) basis. Buyers, including Starcom's John Muszynski, say there will be price cuts; sellers say there won't be.

Speaking to Morgan Stanley investors and analysts last week, Muszynski, who oversees $2.7 billion in TV ad spending, predicted a 20% drop in total upfront ad dollars compared with a year ago, sources said. If that prediction turns out to be true, that would translate to roughly $6.4 billion to $6.5 billion, compared with the $8-plus billion in spending commitments recorded a year ago and the roughly $7 billion in 1999.

But network executives caution that last year's true upfront number declined significantly later in the year when advertisers exercised options to get out of as much as $500 million in spending commitments. That dropped the upfront number to somewhere in the $7.7 billion to $7.8 billion range, they say. And they are hopeful that there won't be a drop of more than 5% to 10%—or between $7.02 billion and $7.4 billion. But Muszynski reported that one network executive told him last week that his network is bracing for an 18% drop in its upfront take compared with last year.

At Starcom, he reported, client budgets are down about 20% for TV network, 29% for cable TV and a whopping 51% for syndication, compared with a year ago.

Muszynski reportedly said NBC is in a tough position. Why? Because the network "gouged" advertisers in a way the other networks did not last year. Advertisers may try to return the favor this year, he reportedly said. The network's response, in essence: Deal with it. We're still No.1 in the demo most advertisers want most, adults 18-49.

John Nesvig, president, advertising sales, at Fox, estimates that the prime time upfront take will be in the low- to mid-$7 billion range, making it the second-best upfront after last year. But he doubts there will be CPM price cuts. Such talk, he says, stems from "agencies that have a problem managing some clients' expectations."

Starcom hasn't done any upfront deals yet, and network sources say that no other major agencies or advertisers have stepped up either. "They're hiding their money for now," a Big Four source said about the network advertisers. "We're not begging for any money. We know it's there. We know it's ours. It's going to be a much more gradual market this year."